Business Blog Posts

MELBOURNE/TORONTO Reuters Chinese and other investors have approached at least one big Canadian pension manager about a bid for Canadas Potash Corp to rival BHP Billitons $39 billion hostile offer.

The disclosure by Alberta Investment Management Corp, which manages some C$70 billion $67 billion in public sector pension funds, is one of the first pieces of hard evidence to back up speculation that China is looking for a way to derail a takeover of Potash Corp by the powerful Anglo-Australian miner.

AIMCo said it was not interested, because the economics did not work.

Chinas state-owned chemicals giant Sinochem has reportedly hired HSBC to evaluate options, and chatter persists that sovereign wealth funds, such as Chinas $300 billion China Investment Corp, may also be seeking a bid of some kind.

Given the size of the deal, all major investment banks not working with BHP or Potash Corp are pitching possibilities to Chinese clients, multiple investment banking sources in Asia have told Reuters.

But so far, no formal counter bid has emerged, only talk. The hefty price tag is still prohibitive for many potential suitors, bankers say.

Shares in Potash closed up 1.8 percent at $148.55 on Thursday, 14 percent above BHPs $130 offer price, while BHP shares edged up 0.3 percent on Friday.

CANADIAN CONCERNS

The possibility of Chinese involvement in a valuable Canadian resource has raised concerns in Saskatchewan, which is worried that a takeover of its largest company by a foreign firm or major customer could affect jobs and government revenue.

BT Financial Group portfolio manager Tim Barker in Sydney said the interest in Potash Corp from China, as it seeks to secure the future supplies of fertiliser it needs to rapidly boost food production, potentially changed the dynamics of the deal.

"Eventually it is an interesting line to draw between an independent company important to a province, and allowing it to go to either a customer with a different set of objectives or let it go to a bigger independent company. It will test a few nerves," Barker said.

Saskatchewan Energy Minister Bill Boyd has raised concerns about China buying into Potash Corp and about BHPs stated intent to eventually market its potash offshore on its own, rather than through the export consortium Canpotex.

The state said it had asked the Conference Board, a nonprofit research organization, to examine the effect of a takeover, including the conditions Saskatchewan might ask the federal government to impose on a deal and ways to mitigate risks from BHPs bid and any others that could come forward.

ENERGY OPTIONS?

For its part, BHP had been eyeing a major acquisition in the oil and gas sector over the past year, but was unlikely to move on its ambitions while it is tied up with its bid for Potash Corp, a source said on Friday.

BHP, flush with cash since abandoning a roughly $140 billion takeover of rival Rio Tinto in 2008, has been on the hunt for deals to cement its position as the worlds largest diversified miner.

It considered, then abandoned, a joint offer with Royal Dutch Shell last year for Australian oil and gas firm Woodside Petroleum worth some A$35 billion $31.9 billion, the Australian newspaper reported on Friday.

BHP did not return calls seeking comment on the newspaper report, which also cited an unnamed global energy industry figure as saying the mining giant may also be interested in Anadarko Petroleum Corp.

"The problem with Woodside is it is a very expensive oil company and because there is always takeover speculation, it is very hard to make the numbers work," a source familiar with the situation told Reuters.

BHP Chief Executive Marius Kloppers is currently focused on wooing Potash shareholders and BHPs own investors in four continents about the merits of the offer.

He is expected to spend the next few weeks shuttling between Europe and North America as he tries to clinch his first major deal after three years on the job.

"They are pretty busy right now, but they are a big company so within six to 12 months of getting one deal done there could be presumably be another one," the source added.

Analysts poured cold water on the notion of a second simultaneous major deal, even for a mining giant with BHPs financial muscle.

"I would have thought it unlikely for BHP to be looking at two large acquisitions at the same time. The size of the two transactions matter," said BTs Barker.

Additional reporting by Narayanan Somasundaram in Sydney and Joseph Chaney in Hong Kong; Editing by Ed Davies and Lincoln Feast

BEIJING Reuters China on Friday offered a rare glimpse into its foreign exchange reserves, confirming that they are overwhelmingly allocated in dollars, while a central banker said the mountain of cash could face depreciation risks.

The Chinese governments currency reserves, the worlds largest such stockpile at $2.45 trillion, are held roughly in line with what was described as the global average: 65 percent in dollars, 26 percent in euros, 5 percent in pounds and 3 percent in yen.

The report in the China Securities Journal, an official newspaper, cited unnamed reserve managers.

The allocation of Chinese foreign exchange reserves is considered to be a state secret, but analysts have long estimated that about two-thirds are invested in dollar assets.

Separately, Hu Xiaolian, a vice governor with the Peoples Bank of China, warned that depreciation loomed as a risk for foreign exchange reserves held by developing counties.

"Once a reserve currencys value becomes unstable, there will be quite large depreciation risks for assets," she wrote in an article that appeared in the latest issue of China Finance, a Chinese-language magazine published under the central bank.

She reiterated Chinas long-standing discomfort with a global financial system dominated by a single currency in the dollar.

"The outbreak and spread of the global financial crisis has highlighted the inherent deficiencies and systemic risks in the current international currency system," she said.

"A diversified international currency system will be more conducive to international economic and financial stability," she added.

To that end, developing countries must speed up reform of their financial markets, and China would work to promote greater cross-border use of the yuan, she said.

DIVERSIFICATION

There have been signs in recent months that Beijing has stepped up the pace of diversification of its foreign exchange reserves away from dollar assets.

Chinese net buying of Japanese debt has surpassed 1.7 trillion yen this year, far surpassing its record of 255.7 billion yen in 2005.

China has also raised holdings of South Korean bonds by 2.48 trillion won $2.11 billion in the first seven months of this year from 1.87 trillion won at the end of last year. However, Chinese investors only started buying South Korean bonds in the middle of 2009.

At the same time, China has slightly cut back its vast holdings of U.S. Treasuries, from $894.8 billion at the start of the year to $843.7 billion in June, according to the most recent data. China remains the biggest single holder of U.S. government debt.

But analysts have also warned against reading too much into the apparent shifts in the flow of cash from China. Like any investor with commercial interests in mind, Beijing has shown a readiness to shift its strategy depending on what it sees as good buys at the time.

The China Securities Journal laid out the prospects for a shift back to the dollar in the near term.

"It is unlikely that China will increase purchases of Japanese bonds in the coming months because the yen might weaken at any time," the newspaper said.

"China is very likely to increase purchases of U.S. Treasuries in September. The possibility for China to buy more Korean bonds cant be ruled out," it added.

Editing by Ken Wills

LOS ANGELES/NEW YORK Reuters Burger King Holdings Inc , the No. 2 U.S. fast-food chain, agreed to sell itself to investment firm 3G Capital for about $3.26 billion in a deal analysts said would give the restaurant breathing room to fix its business.

At $24 per share, the deal represents a 46 percent premium to Burger Kings price before news of the deal talks emerged on Wednesday.

Including the debt that New-York based 3G will assume, the deal is worth about $4 billion, the company said on Thursday. The transaction is expected to close in the last three months of 2010.

"It looks like a good price for Burger King shareholders. I dont anticipate that someone is going to come in higher," said Telsey Advisory Group analyst Tom Forte.

Analysts said the deals valuation -- at almost nine times its cash flow over the last year -- is a bit higher than previous restaurant deals and could pave the way for more acquisitions.

"The valuation is based on good fundamentals which Burger King doesnt have and probably wont have for another year," said Stifel Nicolaus restaurant analyst Steve West. On Wednesday, he issued a research note saying that a $23-per-share price would satisfy shareholders.

TPG Capital LP, Goldman Sachs Capital Partners and Bain Capital Investors collectively own about 31 percent of Burger King and will tender their shares into the offer, which is due to begin by September 17.

Under terms of the deal, Burger King can solicit higher bids from other third parties until October 12.

Burger Kings private equity investors took the company public in May 2006 at an initial share price of $17.

Before details of the deal became public on Wednesday, shares in Burger King were down more than 31 percent since the end of 2008. McDonalds shares were up nearly 18 percent.

On Thursday, shares of Burger King were up more than 24 percent at $23.44 in morning trading and had gained nearly 15 percent on Wednesday. Larger rival McDonalds Corp rose 0.4 percent and Wendys/Arbys gained nearly 7 percent.

CATCHING UP TO MCDONALDS

Burger King has lagged McDonalds and other fast-food chains as its key customer base takes a deeper hit from persistently high unemployment rates.

Last week, the company forecast weak demand during its new fiscal year due to the U.S. economys slow pace of recovery and government austerity programs in several European countries.

West said going private would free Burger King from the distraction of pleasing Wall Street and allow it to make major changes to its business.

In particular, West said Burger King needs to remodel its restaurants, which he said are older and less appealing than those under McDonalds Golden Arches.

It will also need to invest in other improvements to better compete, such as the kind of point-of-sale technology that McDonalds uses to spot trends immediately, rather than wait for monthly sales reports, West said.

Forte said he would like to see Burger Kings new owners stick with the companys "barbell" strategy of selling low-priced and high-priced food, further improve relationships with franchisees and remodel stores.

Burger King Chief Executive John Chidsey will stay on during the transition period before taking the newly created position of co-chairman of the board.

3G Managing Partner Alex Behring will also be co-chairman once the deal closes.

Lazard Ltd, J.P. Morgan Securities LLC and Barclays Capital acted as advisers to 3G Capital. Morgan Stanley and Goldman, Sachs & Co advised Burger King.

Editing by Michele Gershberg, Dave Zimmerman

WASHINGTON Reuters Pending sales of previously owned U.S. homes rose unexpectedly in July, an industry group said on Thursday, suggesting a tax credit-related housing market decline was close to bottoming.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, increased 5.2 percent to 79.4 from June. June contracts were revised to show a slightly bigger 2.8 percent decline instead of the previously reported 2.6 percent fall.

Compared to the July last year, pending home sales fell 19.1 percent. Economists polled by Reuters forecast the index, which leads existing home sales by a month or two, falling 1.0 percent in July.

Home sales and building activity have dropped sharply following the end in April of a popular tax credit for home buyers.

"Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery," said Lawrence Yun, NAR chief economist.

Reporting by Lucia Mutikani; Editing by Padraic Cassidy

NEW YORK Reuters Hewlett-Packard Co HPQ.N raised its offer for data storage company 3PAR Inc PAR.N by $3 to $33 per share, after rival bidder Dell Inc DELL.O raised its offer to $32, instead of bowing out as many expected.

3PAR said on Thursday that HPs offer is superior and it intends to terminate its previous merger agreement with Dell.

3PAR shares rose to $33.59 in premarket trade from their close on Wednesday at $32.08. They had had mostly traded around $10 this year, until Dell announced its $18 per share bid in August.

Reporting by Ritsuko Ando, editing by Gerald E. McCormick

WASHINGTON Reuters Tough government follow-through on a freshly minted U.S. financial law will be crucial to ensure no bank or firm grows so large that its collapse could jeopardize the entire economy, Federal Reserve Chairman Ben Bernanke said on Thursday.

Bernanke and Federal Deposit Insurance Corp Chairman Sheila Bair said strong implementation of the new financial rules are essential to preventing a repeat of the recent economic melt-down that began in the United States and wreaked havoc around the world.

"If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved," the Fed chairman said in testimony prepared for delivery to the Financial Crisis Inquiry Commission.

Stricter capital and liquidity norms, a regime to wind down a failing firm in an orderly fashion, and requirements that most derivatives are to be settled in clearinghouses, will strengthen the financial system and help address the too-big-to-fail problem, Bernanke said.

Bair said the Dodd-Frank Act reduces the likelihood of future crises, and gives regulators the ability to handle failing financial giants without resorting to bailouts -- but only if the reforms are properly implemented.

She said the FDIC must have real-time data on financial firms conditions. Firms and other regulators must also cooperate with the FDIC so it can do extensive advance planning.

"If implementation is not properly carried out, the reforms could be ineffective in preventing future crises or containing financial market disruptions should they occur," she said in written testimony.

Bernanke pledged the Fed would increase enforcement actions where necessary and would deploy more-senior officials to engage bank officials on supervisory concerns in the future.

Reprising arguments he has made in the past, Bernanke said low interest rates in the early part of the decade cannot be blamed for the real estate bubble that exploded with such damaging consequences, instead pointing to relaxed lending standards and optimism fueled by rising prices.

Policymakers cannot rule out raising interest rates to slow an asset bubble from forming, but he said they should rely primarily on regulatory steps to slow excesses.

Reporting by Mark Felsenthal; Editing by Tim Dobbyn

WASHINGTON Reuters New claims for unemployment benefits fell last week, government data showed on Thursday, but were still too high to signal a change in fortunes for the troubled labor market.

Initial claims for state unemployment benefits dropped for a second straight week, slipping 6,000 to a seasonally adjusted 472,000 in the week ended August 28, the Labor Department said.

Analysts polled by Reuters had forecast claims edging up to 475,000 from the previously reported 473,000 the prior week, which was revised up to 478,000 in Thursdays report.

Reporting by Lucia Mutikani; Editing by James Dalgleish

CHICAGO Reuters Retailers posted better-than-expected sales in August as consumers sought out bargains during the key back-to-school selling season.

Early reports gave analysts hope retailers were able to clear excess inventories ahead of the crucial holiday-selling season without having to resort to deep discounts.

But with stubbornly high unemployment and weak consumer sentiment, shoppers were still focused on low prices when choosing what to buy.

"The cheaper it is, the more I go there," Jialing Jiang, a Chicago high school student said on Wednesday as she shopped on the citys State Street.

Nine of the 11 retailers that reported as of early Thursday morning beat analysts expectations, according to Thomson Reuters data.

"Discounting was particularly heavy this back-to-school season, and early," Ken Perkins, president of Research firm Retail Metrics, said.

Analysts also said the warmest August in more than a quarter of a century helped spur sales of late lingering summer clothing inventory.

The month was the warmest since 1983 and second warmest in 50 years, according to Planalytics Inc, which provides weather information to businesses.

Retailers that focused on low prices continued to be among the best performers.

Warehouse club operator Costco wholesale Corp COST.O said U.S. same-store sales rose 5 percent in August, excluding sales of gasoline, beating the average analyst estimate of 3.6 percent.

Limited Brands Inc LTD.N posted a same-store sales increase of 10 percent, led by a 15 percent surge at its womens lingerie chain, Victorias Secret. Analysts had expected an increase of 7.3 percent for the company.

Dollar store operator Family Dollar Stores Inc FDO.N said same-store sales rose 6.1 percent in the fourth quarter ended August 28, beating the average analyst estimate of 3.1 percent.

Analysts, on average, expected sales to rise 2.5 percent across the retail industry, according to Thomson Reuters data. Sales tax "holidays" in several states were helped lift sales of selected items, analysts said.

Retailers will face tougher comparisons starting in September to 2009 sales, after lapping declines in same-store sales in 2009 so far this year.

Additional reporting by Emily Stephenson in Chicago

Reporting by Brad Dorfman, editing by Dave Zimmerman

LONDON Reuters Stock index futures pointed to a mostly lower open for U.S. shares on Thursday, giving back a little of the strong gains from the previous session, when they were boosted by strong manufacturing data from China and the United States.

At 0841 GMT 4:41 a.m. EDT, futures for the Dow Jones and S&P 500 were down 0.2 and 0.1 percent respectively; those for the Nasdaq were flat.

The FTSEurofirst 300 .FTEU3 index of leading European shares was down 0.2 percent at 1,053.53 points, ahead of the ECB rate decision and indications it may give on liquidity and bond buying.

Key reports on the condition of the U.S. economy will set the stage for Fridays critical nonfarm payroll report. Initial jobless claims are expected to rise by 2,000 to 475,000 for the latest week, which would put the four-week average at 486,750. The report follows ADP data on Wednesday that showed private employers unexpectedly cut 10,000 jobs in August, delivering another blow to the faltering economic recovery.

Other July data due includes factory goods orders, which are expected to show an increase of 0.3 percent, rebounding slightly from a decline of 1.2 percent in June, and pending home sales, which are expected to fall 1 percent after dropping 2.6 percent to a record low the previous month, following Mays huge drop of 27.9 percent.

August U.S. same store sales are expected to show modest gains as retailers used discounts to attract customers as a weak economy raised concerns about clearing fall merchandise from the shelves before the key holiday shopping season. Analysts on average expect a 2.4 percent increase in sales at stores open at least a year, according to Thomson Reuters data.

Two struggling units of Lehman Brothers Holdings Inc LEHMQ.PK, the bankrupt U.S. investment bank, need hundreds of millions of dollars in capital to stave off failure that could cost Lehman billions, court documents show.

Time Warner Cable TWC.N and Walt Disney Co DIS.N ensured millions of U.S. cable customers they can still watch some of their favorite TV programmes while the companies kept working on a new programing deal after a midnight deadline passed.

Wall Street posted its best day in eight weeks on Wednesday as investor mood brightened after better-than-expected factory data from the United States and China.

The Dow Jones industrial average .DJI rose 2.5 percent; the Standard & Poors 500 Index .SPX and the Nasdaq Composite Index .IXIC gained 3 percent.

Reporting by Brian Gorman; Editing by Hans Peters

BANGALORE Reuters Costco Wholesale Corp COST.O, the largest U.S. warehouse club operator, reported a 7 percent rise in August sales at stores open at least a year, aided by surge in gasoline prices and foreign currency gains.

Midwest, Texas, northwest and Los Angeles performed the best for the company within the U.S. Internationally, Korea, Canada and Japan were the outperformers, the company said.

Analysts were expecting same-store sales to rise 4.2 percent, according to Thomson Reuters data.

The company, which currently operates 572 warehouses across the world, said it gained from the strengthening of the Canadian dollar as well as the Korean won.

For the four weeks ended Aug 29, net sales at the Issaquah, Washington-based company rose nine percent to $5.9 billion.

Discounts and back-to-school selling had helped teen retailers Hot Topic Inc HOTT.O and Zumiez Inc ZUMZ.O beat August same-store sales estimates.

Reporting by Krishna N. Das in Bangalore